As I’ve been settling into my new land lording lifestyle I’ve started taking a look at the new balance sheet. I’m currently taking in $900/month from house 1, and $1,000/month from house 2. After taxes, water bills, trash bills and insurance I’m netting about $1,400/month from the two houses. I also like to set aside an additional $300/month for future maintenance and vacancies, which leaves me with about $1,100/month left over.
My personal monthly budget includes; taxes on the house I live in, utilities, insurance, gas and groceries. After all those “bare necessities” are paid for I’m left with a monthly surplus of about $530/month.
Out of that has to come the discretionary and occasional expenses like vehicle replacement/maintenance, clothing, gifts, entertainment, hobbies, etc..
I definitely think it’s a sustainable budget as long as I remain diligent about keeping expenses in check.
But it leaves little room for some things I’d like to do in the future like putting up a PV array, building a solar thermal heating system, playing around with other alternative energy systems, flight lessons, buying a second-hand sailboat or RV, maybe building a green house on to the side of my home. After those projects are done with I’d also like to build up a securities portfolio so that my financial safety margin just gets bigger and bigger as I age.
I think what I’d really like, in order to make those types of projects feasible is to be running a surplus closer to the $1,500/month range.
Which means, basically, I want one more rental property. But I’ve invested almost all of my savings into the 3 houses I own now, so I need to come up with about $20k-$30k in order to do it.
I see a few avenues for making this happen:
1. Borrow. I have no debt right now and about $250k of equity in my 3 homes, and a good track record with real estate so far. But I don’t have a job. When I had my part-time job last year I approached several banks to see if I could secure a home equity loan on one of my properties, but since my rental income was newly established, and my part-time job income wasn’t very much, no bank or credit union would loan me money.
I do have several friends who I could approach about some kind of secured loan/investment/partnership deal. I could take someone’s money, get a property purchased, rehabbed, and rented, and then just throw virtually all the rental income from that property back to the investor until the loan is paid off with an appropriate amount of interest added on to compensate them for their risk. The whole thing could probably be paid back in less than 5 years. I could also break it down so it’s not so daunting an amount by asking for, say $10k from a few friends rather than $30k from one.
I could also look into alternative financing like peer to peer lending.
2. Sell. I could sell one of my houses at its new, higher value because of the rehab work I’ve done. I could get $80k-$90k from one sale and use that money to buy two or maybe even three distressed properties to replace it. I’m a little averse to this plan because I purchased and fixed up the properties I did with an eye towards them being easy to rent out, not easy to resell. To get the maximum return on resale I would really have to put in a little more work on the places like re-siding and getting prettier appliances. And they’re small places, good for rentals, but not likely to be anybody’s “dream home” so I’m not sure how long it would take to sell. Plus, they’re good rentals providing a good income stream and I’d hate to sell at what, in my area, is pretty much the bottom of the market.
3. Work. I think with a small amount of effort and patience I could get a temp job in the $30/hr, 40 hr/week range. Large law firms, when they’re commencing a big law suit with hundreds of thousands or even millions of documents to sift through, will farm out work to lawyers to help sort through it all on a temporary basis, often on a 3 to 6 month contract basis. It’s a soulless, uninteresting, repetitive grind that most lawyers see as the mark of a failed, dead-end career. And indeed, if you had to do that for years when your life goal was be a crusader of justice or to make partner and eat fancy lunches, I could see why.
But for me, looking to scrounge together ~$25k, putting my nose to the grindstone for 6 months in a $30/hr temp job might be a pretty good arrangement.
4. Be Entrepreneurial. I think of this as a scatter shot approach to develop multiple avenues of income. Kind of like working a job, just without the mandatory regular schedule. I could do some legal work here and there. Handyman work here and there. I could buy, fix up, and sell things at a profit like furniture or vehicles. I could make a plan to try to make some money off of my garden or worm-farming. Play the credit card game of collecting $500 sign up bonuses. Brush up on my PHP and build some websites. Look for some avenues to get paid for my writing.
Right now I’m leaning towards option 3, mostly because it’s the simplest and likely fastest way of getting to my goal of having an extra rental payment coming in each month. But I’m not ready to commit to anything just yet. I jumped on an opportunity to do some travelling next month for only the cost of my plane ticket. There’s no hurry to take any action right now since I think real estate deals in my area are still going to be around for at least another year or two. So for right now I’m going to just enjoy myself, mull things over, and decide on my future financial course of action sometime this summer.